Invasion of trust assets in family cases

19.07.2013

The decision to put assets into trust or add a spouse as beneficiary to a trust is usually driven by tax considerations. But it is important to be aware of the potential consequences of holding assets in trust in the event of divorce.

When a marriage breaks down the court has a wide discretion to re-distribute the parties’ assets to achieve a fair outcome. This includes assets held in trust.

The court can make orders to vary nuptial trusts for the benefit of either spouse or any children. A nuptial trust is, broadly speaking, a trust set up in contemplation of marriage or during the marriage for the benefit of the parties or their children or both. The court will, however, be less likely to make an order varying a nuptial trust if the trustees and trust assets are located abroad unless it is satisfied that the order would likely be enforced.

Even if a trust is non-nuptial, the court may still regard the trust assets as forming part of the matrimonial pot if it considers that the trustees are likely to advance capital to the beneficiary spouse in the near future. What sometimes happens in practice is that the court will order the beneficiary spouse to pay their spouse a lump sum, which can only be funded via distributions from the trust. The court is not, however, permitted to put undue pressure on trustees to advance capital, although this is often the reality.